You are here

News

How To Create a Financial Plan Without Paying For An Advisor

July 17, 2018

A financial planner serves as a guide and a coach. Some people need that and some don’t. Here’s how to create a financial plan without the fees.

Hiring a financial planner is like working with a nutritionist or a personal trainer. They can serve as a guide and a coach—both pointing you in the right direction and encouraging you to get there. For some people, that kind of instruction is invaluable.
But not everyone with a six pack has a nutritionist, and not everyone with hulking muscles has a personal trainer. Working with a guru can be helpful, but you can get there on your own.
When it comes to managing your finances, the money you spend on a financial advisor could be better spent on your investments—assuming you know how to properly invest. Creating a bulletproof financial plan without assistance hinges on whether or not you can make shrewd and responsible decisions on your own.
If you’re looking to fly solo, here’s a quick rundown of what you need to know.
Determine your goals

The first thing any planner will ask about is your goals—what do you want to do with your money, now and in the future? Do you want to start your own business, retire early, or take a year off to travel?
Identifying your goals first is crucial, because that will determine your next steps. If your goal is to retire early, then your action items will be different from someone whose goal is to start a family as soon as possible. If you’ve never thought about it, now is the time. Forcing yourself to develop goals will help you to better understand what you want out of life, and how your finances can help you get there.
You’ll likely have both short-term and long-term goals. A short-term goal might be to move to a nicer apartment, while a long-term goal would be to buy a condo. Make a list of both types of goals and rank them accordingly.
Look at your assets, liabilities and cash flow

To get a holistic look at your finances, you’ll need to compile a list of your assets and liabilities.
Assets

Your assets are what you own, including physical items like your house, car, and any collectibles. Assets also include the cash you have in your checking, savings, and retirement accounts.
Liabilities

Your liabilities include your debts, including your mortgage, student loans, auto loans, and outstanding credit card balance. Once you have a list of both assets and liabilities, subtract the liabilities from the assets to come up with your net worth.
It’s not uncommon for millennials and young people to have a negative net worth, especially if they’re dealing with costly student loans.
Cash flow

Once you have your net worth, it’s time to look at your cash flow, which is how much you spend versus how much you earn. Go through your bank account and credit card statements with a spreadsheet or an app like Mint and compare your monthly outlay to your net income.
If you’re spending less than you earn, great. You’re on your way to saving money and creating a stable financial plan. Most people will discover they’re spending more than they thought and will need to make some changes.
Look at those expenses carefully and analyze each one. Do you really need a Hulu, Netflix, and HBO Now subscription? Is your monthly pedicure a necessity or can you cut back to once a quarter? Slashing your budget is a painful and arduous process, like dieting or starting a new exercise regimen.
This is the time to remember your long-term goals and why you’re making these sacrifices in the first place. It’s easy to give up Taco Tuesdays with friends if you’re saving for a bucket list trip to Japan or your first house.
Create an investing plan

Consumers often hire financial planners to help create an investing strategy for retirement, but with the advent of robo-advisors, anyone can start investing by themselves.

Robo-advisors

A robo-advisor is a digital software platform that creates investment portfolios with a simple algorithm. When you sign up, the robo-advisor will ask your age, risk tolerance, current retirement savings, and desired age of retirement. Then they determine what you should be investing in and exactly how much you should save every month.
Though you could hire a financial planner to create a unique and specialized plan, it will cost hundreds of dollars. A robo-advisor will do almost the same thing for far less. Reputable companies include Betterment and Wealthfront.
You can only use a robo-advisor if you have an Individual Retirement Account (IRA). If you have a 401(k) or 403(b) through work, your company will have a list of funds you can choose from. If possible, we recommend picking a target-date fund from a company like Vanguard, T. Rowe Price or Charles Schwab.
Target-date funds

Target-date funds are the set-it-and-forget-it system of investing. You pick a target-date fund with a date close to your retirement goal, choose how much to invest every month and step aside. The fund will reallocate itself as it gets closer and closer to the target date so you don’t have to check on it regularly.
When you need an advisor

Typically, people don’t need a financial planner unless they’re unable to manage their investments by themselves or have unique circumstances. If you inherit $200,000 after your father’s death, for instance, a financial planner can show you how to invest the money and make it last for decades to come.
You can find a reputable financial planner through the National Association of Personal Financial Advisors or the XY Planning Network, which is aimed at millennials and Gen-Xers. Before you choose one, have a brief introductory call to ask them about their work and how they charge clients.
Stick with fee-only planners who charge on an hourly or monthly basis instead of a percentage of your total earnings. Find an advisor who has a fiduciary duty to you, which means they can’t recommend products they earn a commission on.
Summary

Hiring a financial planner is like working with a nutritionist or a personal trainer. They can serve as a guide and a coach—both pointing you in the right direction and encouraging you to get there. For some people, that kind of instruction is invaluable.

Financial Success Starts Today!

This website is intended to be a resource for students and young alumni. Non-Duke web sites linked to in these pages are not part of Duke University, and their inclusion does not imply any endorsement by the university.